Fiscal Decentralization and Budget Control

Fiscal Decentralization and Budget Control

Studies in Fiscal Federalism and State-local Finance series

Laura Von Daniels

Fiscal Decentralization and Budget Control explores possible institutional solutions to fiscal instability in countries that have traditionally been caught up in problems of over-expenditure and over-indebtedness. How can governments control spending pressure from influential groups, often representing historically grown regional interests? Drawing on a mix of statistical analyses and case studies in institutional theory, the book provides new insights on previous stabilizations in Latin America and facilitates a better understanding of common dynamics of deficits and debt accumulation.

Chapter 6: Fiscal federalism under decentralized budgetary institutions in Argentina

Laura Von Daniels

Subjects: development studies, development economics, economics and finance, political economy, politics and public policy, political economy, public policy

Extract

This chapter looks at fiscal imbalance, vertical fiscal decentralization and attempted reforms of budgetary institutions in Argentina since 1990. The evidence I find suggests that Argentina did not establish the kind of budgetary institutions at the central government level that were shown to be crucial for successful fiscal stabilization in Brazil. On the surface, Argentina appeared to be a case in point for a quick implementation of ‘Washington consensus’-type reforms. For large parts of the administration of President Carlos Menem (1989–1995), his new economic policies, aiming for a radical transformation of the economy, seemed to pay off quickly. Looking back at that period, we are now able to say that reform successes were often overrated while large structural weaknesses remained. In this chapter, I focus on the remaining fiscal imbalances that began to resurface in the spring of 1999. Provincial-level fiscal and debt problems contributed not only to overall government financial instability but also to a loss of confidence in the debt-management capacity of the government on the part of financial investors. Below, I describe the process that later culminated in what at the time became known as the ‘greatest default in history’ – the Argentine government’s public declaration of sovereign default in December 2001. Looking at the root causes of debt accumulation, I trace the process of fiscal policies and institutional reform (or lack thereof) from the beginning of the democratic transition in the early 1980s.

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